Effect of shocks on long run

Reference no: EM1311829

Suppose that deterioration in the education level of the U.S. population reduces the marginal product of labor. Also suppose that at the same time there is a rise in transfer payments (for example, for Social Security and Medicare) by the government.

With the help of an AD-AS graph, explain the effect of these shocks on the long-run equilibrium level of the price level and output. Use a long-run supply curve to answer this question.

Reference no: EM1311829

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